The rail sell-off comes to a head-on crash

The head-on collision that many predicted would be the inevitable consequence of rail privatisation has occurred even more rapidly than expected. Unsurprisingly, the City is delighted with the latest outing of the Stagecoach Pullman. But its pounds 825m acquisition of the train leasing business Porterbrook has derailed the regulators and left the Transport Secretary Sir George Young looking like the booking clerk who issued a Super Saver before 9.30 in the morning.

In some respects Stagecoach's Brian Souter has got to be admired for exposing the contradictions in the rail sell-off by seeking to add a rolling stock company to the passenger franchises he already has and hopes still to get. Whether admiration is the sensation coursing through Whitehall is less certain.

If rail privatisation was about anything it was about introducing competition. To sane people, splitting BR up into 57 different varieties looked barmy but we were reassured that it would expose inefficiencies and force the component parts to deal more competitively with one another. We were also assured that rail privatisation would not be another gravy train for bloated executives.

With one move Mr Souter has driven, well, a stagecoach through the Government's best intentions. The vertical integration that would result from the Stagecoach- Porterbrook deal strikes at the heart of the new structure put in place through privatisation. The overnight windfalls that have dropped in the laps of the Porterbrook management put even the corporate excesses of the regional electricity companies in the shade.

The idea that any of those Porterbrook executives who mortgaged their houses to jump on board are now being rewarded for their risk-taking is also fanciful. Inheriting a business where 80 per cent of the revenues are guaranteed for eight years is the kind of risk we would all love to take.

The Office of Passenger Rail Franchising and the rail regulator John Swift are not surprisingly building up a fair old head of steam about the way the bidding system for the remaining 12 franchises could be compromised. It is easy to see why if Stagecoach can, on the one hand, set the price for leasing out the rolling stock and on the other dertermine what it is worth bidding for in subsidies.

Mr Souter has already thought of that and is attempting to avoid being shunted off to the MMC with a series of undertakings. How easily they could be policed is another matter. A more effective safeguard might be to bar Stagecoach from bidding for any more rail franchises.